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Alsip Value Trap

Article:

Are industrial property prices in Alsip inflated? We think so. This could mislead the tax representative, or appraiser, seeking equitable industrial property valuation in the southwest suburbs. We’ll explain why.


We recently completed an appraisal of an industrial building in the Crestwood/ Alsip area, and were puzzled as to why the purchase price of one recent sale comparable in Crestwood, was so much lower than proximal industrial building comparables in Alsip of similar size, age and utility. Crestwood also has lower property tax rates, so that all else equal, one would expect a higher price per square-foot, not lower.    


Alsip’s improved industrial base at 13 million square-feet is almost 13 times the size of Crestwood’s. In appraising an industrial building in Crestwood, it is a virtual impossibility not to use at least some comparable sales from Alsip due to its proximity and the overwhelming size of its industrial base.


Two very important observations were made by market participants in the course of informant interviews: 1) in the present environment, purchasers are loath to acquire properties without the Class 6b property tax incentive; and 2) Alsip tends to be much more liberal than Crestwood in approving such incentives. This is consistent with the five transactions above in that all of the Alsip sales were class 6 properties, while the Crestwood sale was not. This difference alone is enough to explain much of the price variation.


In the following evaluation of the potential differential in the real property tax liabilities of the Crestwood and Alsip properties, we show a premium of approximately 20% to 30% would result from the Class B incentive, using fairly conservative discounting and real estate tax growth assumptions. (This compares the Alsip sales to a sale in a Crestwood district having an 11.148% composite tax rate. For Crestwood properties in a district with a 12.955% composite tax rate, the premium would be even greater).

 


In appraising an industrial property in Crestwood, or other nearby communities, the valuer inevitably encounters potential comparable sales from Alsip, due to the size of Alsip’s industrial base, and the preponderance of Class 6 properties, which as noted, find more favor in the market. If not cognizant of the profound effect Class 6 status has on marketability and value, one risks significantly over appraising a property without the incentive by inadvertently relying on skewed data. In the example illustrated here, a property having a true value in the mid-to-upper $20 per square-foot range could easily be valued in the low-to-mid $30 per square-foot range, with no one the wiser.


This real-world example comes from the Alsip/ Crestwood area; however, we believe it applies throughout the south suburbs. If you represent a client in the south suburbs, it is imperative to check on the property classification of the comparable sales used relative to the subject, and to adjust accordingly, else use comparables assessed similarly, even if further away.  

J. Chie, Esquire

Our law firm provides legal work for real estate closings for over 30 years… What distinguishes Chicago Commercial Appraisal Group from other appraisers is the level of thoroughness and details.

A. Raila, Senior Tax Analyst

Gary is a hands-on professional always willing to pick up the phone and work with you... His appraisal firm produces one of the best real estate forecasting reports in the state. I highly recommend his work and his opinion is highly recognized by governmental agencies.

J. Norris, Property Tax Attorney

As an attorney, we deal with many appraisal reports used in tax appraisals. Gary's work has proven successful for our clients and I do not hesitate recommending him for tax assessment appeal appraisals.

C. Noone, property owner

I needed an appraisal for settling an estate. Mr. Peterson was very professional, punctual and helpful with the process. I received my report ina timely manner. I would certainly recommend this company, as well as use their services in the future.

J. Tsiaousis

Gary is one of the top commercial appraisers in Chicago. Every time I have a client in need of a commercial appraiser I refer all work to him without hesitation.